Agricultural emissions have been excluded from the Federal Government’s carbon pricing scheme, but the cattle industry could still face potentially significant impacts when the planned carbon tax kicks off from July 1, 2012.

The industry is still digesting the detail and complexity of the scheme. The good news is that fuel has not been included initially, but early indications suggest that producers will face higher electricity costs, and could pay higher prices for inputs and services and receive lower returns for cattle as cost impacts are passed back down the supply chain.

The Australian Farm Institute’s initial estimates suggest that under the $23/t carbon tax an average Australian beef enterprise will incur about $1600 in additional costs in year one of the scheme.

This is a summary of the key points for cattle producers so far, compiled from information from Meat and Livestock Australia, the Australian Farm Institute and the Federal Government:

Key features:

• The carbon price will be $23 per tonne of pollution from 1 July 2012, rising by 2.5pc a year above inflation until 2015 when an Emissions Trading Scheme will be introduced.

• Around 500 businesses (facilities with direct greenhouse gas emissions of 25,000 tonnes of CO2 a year or more) will be charged for their pollution, with a 2050 reduction target of 80pc in net emissions on 2000 levels.

Agriculture emissions excluded:

• As previously announced, agricultural emissions from livestock and fertiliser use will not be included in a carbon price and landholders will be able to earn money through the Carbon Farming Initiative (see below).

• The Government has previously stated that agricultural emissions will not be included in a carbon pricing mechanism for the “foreseeable future”.

Fuel:

• Farm, forestry and fisheries industries will not face a carbon price on their off-road use of fuel or their on-road use of light vehicles.

• A carbon price will apply to fuels used in domestic aviation, marine and rail transport, which will increases the costs of aerial mustering and moving cattle by train.

• A carbon price will not directly apply to fuel used for heavy (4.5 tonnes plus) on-road transport.

• The Government wants to apply a carbon price to heavy on-road transport from 1 July 2014, although it has not yet gained support for this from independent MPs Tony Windsor and Rob Oakeshot on its Multi-Party Climate Change Committee.

• Fuel tax credits will not be reduced for agricultural industries. These industries will not pay an effective carbon price. The fuel tax credits will remain at 100pc of the effective fuel tax for these industries.

Food processing:

• Costs of food and grocery manufacturing (including meat processing) will increase through the supply chain, predominantly due to the increases costs of power.

• Large meat processors that produce more than 25,000t of carbon dioxide equivalent emissions per year will have to pay $23/t for every tonne of emissions they produce from year one. A processor producing 30,000t of emissions annually would incur $690,000 in direct costs in the first year. It is unsure what level of compensation processors will yet be entitled to.

• An assistance package is available for food processors, with $150 million available through the $200 million Food and Foundries Investment Program.

Farm business impacts:

• Farm businesses will face higher electricity costs.

• The costs of inputs and services such as transport are likely to increase as suppliers pass higher electricity costs and tax impacts back down the supply chain to producers through higher prices.

• Tax impacts and higher energy costs on meat processors are also likely to be passed back down the chain to producers through deductions in the price paid for cattle.

• Steel prices should not rise substantially because the steel industry will be eligible to rebates of 94.5pc of permit costs, and will also have access to a $300m steel fund to compensate for any remaining costs under the carbon tax.

New Biodiversity Fund:

• A new Biodiversity Fund worth $946 million over six years will be established to fund a range of environmental projects.

• The fund will provide money to farmers, community groups and natural resource management bodies to protect biodiversity, through planting trees, protecting ecosystems, and preventing spread of invasive species.

• There will also be $44 million over five years for natural resource management regions to plan for climate change.

• The Government will provide a refundable tax offset to encourage the uptake of conservation tillage farming techniques and participation in soil carbon sequestration.
• Increase in investment and research:

• The Government will invest a further $201 million over the first six years of the program, for research into new ways of storing carbon and reducing pollution on the land.

• The funding will be for new technologies and innovative management practices such as improving soil carbon, reducing pollution from livestock and crops and enhancing sustainable agricultural practices, as well as biochar, biofuels and new crop and grazing species.

• $20 million over the first six years of the program will be available to convert research into methods recognised under the Carbon Farming Initiative (see below).

Carbon Farming Initiative:

• The Government introduced the Carbon Farming Initiative (CFI) into Parliament in March 2011. While it passed the House of Representatives, it has not yet been voted on in the Senate.

• The CFI will allow land managers to earn credits for actions including planting trees, reducing methane emissions from livestock, reduced fertiliser pollution, manure management, soil carbon, savannah fire management, native forest protection, forest management, reduced pollution from burning of stubble and crop residue, reduced pollution from rice cultivation, and reduced pollution from legacy landfill waste.

• Credits generated under the CFI (that are recognised for Australia's obligations under Kyoto Protocol on climate change) can be sold to companies with liabilities under the carbon pricing mechanism (includes reforestation, savannah fire management and reductions in pollution from livestock and fertiliser).

• Under CFI legislation passed in March, to earn credits tree plantings will involve a 100 year commitment and must be additional to previous carbon abatement activity. 

• In the first three years, large companies will not be allowed to meet more than 5pc of their emissions reductions obligations through CFI credits.

Regional adjustment:

• A $200 million Regional Structural Adjustment package will provide money to regions and communities who need help adjusting to the carbon price.

Communication:

• The Government will spend $4 million to help communicate the details of the carbon price to landholders.

Implications for red meat – industry research:

• The Australian Meat Processor Corporation and Meat and Livestock Australia have contracted consultants to quantify the impacts, flow-on effects and economic consequences of the carbon pricing policy on individual red meat and livestock businesses and the industry at large (drawing on and updating previous industry research).